Irish productivity 'unexceptional' says research commissioned by John and Patrick Collison

Research paper argues for tax and policy changes to support high growth Irish businesses

According to the paper, the level of productivity at foreign firms is around six times the level of productivity of domestic firms.

The Government needs to consider policies and tax changes that can help start-ups build and scale their businesses because as it stands productivity in the domestic firms is “unexceptional” and its capacity to help “maintain high living standards in Ireland is in serious doubt,” a new paper has found.

In the paper, Professor Alan Ahearne of the JE Cairnes School of Business and Economics at the University of Galway argues that living standards in Ireland over coming decades “will depend largely on productivity, which in turn will be determined by technological progress”.

While the paper notes that Ireland has one of the “highest productivity rates in the world” this is due to a small number of multinational companies, which are largely US firms, that have large operations here.

According to the paper, the level of productivity at foreign firms is around six times the level of productivity of domestic firms.

“The productivity of domestic firms is, in contrast, unexceptional”, it said.

The paper said that given global developments “responsibility for driving technological progress in Ireland may soon switch from the foreign-owned multinational companies sector to the indigenous sector”.

“The evidence suggests that, as things stand, the capacity of domestic firms to drive productivity growth and maintain high living standards in Ireland is in serious doubt.” 

Ireland's reliance on the US

Given the unpredictability of the US since president Donald Trump returned to office, serious concerns have been raised over Ireland’s reliance on the US.

The paper points out that over the past 50 years, real income per person has tripled from about €17,500 in 1970 to €53,000 in 2023 with economic growth largely driven by foreign direct investment from the US.

The paper said that international developments present a risk to Ireland’s economic model and given the uncertainty the country will likely rely much “more heavily” on indigenous firms to drive technological improvements, productivity, exports and rising living standards in the coming decades.

“The country will also probably lean more on the domestic sector to generate tax revenues to fund expanding public services such as health and education and much needed infrastructure spending.” 

Mr Ahearne said Ireland has used tax policy in the past to attract foreign direct investment but should now “consider how to use tax policy to attract human capital from abroad to augment our existing talent base”.

The paper said that the “key elements for a thriving, self-reinforcing entrepreneurial ecosystem are human capital and talent”.

Technological progress begins with talented people. 

"Ireland should aim to do much more to attract and retain, both from home and abroad, people with strategic vision and the capacity and experience to offer leadership and world-class mentorship to domestic entrepreneurs.” 

The paper argues for policies that help start-ups in advanced industries and to build and scale indigenous firms including the potential development of a “new national innovation campus” to help develop a “stronger entrepreneurial ecosystem”.

The study says Ireland urgently needs to build a “world-class entrepreneurial ecosystem” to improve its track record at creating indigenous high-growth firms with the “potential to develop innovative products and services based on advanced technology”.

In its latest rankings of start-up ecosystems, StartupBlink ranked Ireland 16th in the world last year and 10th within Europe. The top five ranked were the US, UK, Israel, Singapore and Canada.

Among cities globally, Dublin’s start-up ecosystem ranked 55th.

The research was commissioned by Stripe founders John and Patrick Collison.